Market Commentary week of November 13th, 2017

Finance Digital Data Concept

This week brings us the release of five pieces of economic data for the mortgage market to watch. While that is not an overly large number, several of the reports that are being posted this week are considered very important to the markets. That raises the possibility of seeing noticeable movement in the bond market and mortgage rates.

The first data is October’s Producer Price Index (PPI) at 8:30 AM ET Tuesday, which is one of the two key inflation readings on tap this week. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. Signs of rapidly rising inflation make long-term securities such as mortgage-related bonds less attractive to investors and leads to higher mortgage rates. The overall reading is expected to show a 0.1% rise from September’s level while the core data is expected to rise 0.2%. Weaker than expected readings would be good news for bonds and mortgage rates, while a larger than forecasted increase in the core reading could lead to higher mortgage rates Tuesday morning.

Wednesday has two monthly reports at 8:30 AM ET that may have an impact on mortgage rates. Both of them are considered to be important. The first will come from the Commerce Department, who will give us October’s Retail Sales. This data measures consumer level or retail spending. It is considered extremely important to the markets because consumer spending makes up over two-thirds of the U.S. economy. It is expected to show a 0.1% increase in retail-level spending, meaning consumers spent a bit more last month than they did in September. A larger increase in spending would be considered negative news for bonds because rising spending fuels economic growth and raises inflation concerns in the bond market. If Wednesday’s report reveals a decline that indicates consumers spent less than thought, bonds should react favorably, pushing mortgage rates lower. If it shows a larger rise, mortgage rates will likely move higher.

Next up is October’s Consumer Price Index (CPI) from the Labor Department, also at 8:30 AM ET. The CPI is the sister report to Tuesday’s PPI, except it measures inflationary pressures at the consumer level of the economy and is one of the most important reports the bond market sees each month. If it reveals stronger than expected readings, indicating that inflationary pressures are rising at the consumer level, the bond market will probably react negatively and cause mortgage rates to move higher. Analysts are expecting to see a 0.1% increase in the overall reading and a 0.2% increase in the core data.

October’s Industrial Production data is Thursday’s only monthly release. The at 9:15 AM ET report will give us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to reveal a 0.5% increase in production, indicating strength in the manufacturing sector. Stronger levels of production would be considered bad news for the bond market and mortgage rates, but this report is not expected to greatly influence the markets. Therefore, it will likely take a sizable variance from forecasts for it to have a noticeable impact on Thursday’s mortgage pricing.

The week’s calendar closes with October’s Housing Starts early Friday morning. This report gives us an indication of housing sector strength, but usually does not have a noticeable impact on mortgage rates. I don’t expect this month’s version to be any different unless it varies greatly from analysts’ forecasts. It is expected to show an increase in starts of new homes, meaning the new home portion of the housing sector strengthened last month.

Overall, it is likely going to be another active week for mortgage rates. The most movement is probably going to come the middle days, but we can see volatility any day. Therefore, please proceed cautiously if you are closing in the near future and still floating an interest rate.